After 30 years, Louisiana still pursues its failed industrial inducement policy that only serves to empty state treasury

As it turns out, that quote was attributed to Einstein in error but the fact that he never said it doesn’t alter the accuracy of the definition.

And for at least three decades, Louisiana along with the rest of the South, has insisted on following the same outdated industrial inducement policies first warned about in a 1986 report by MDC, Inc. (Manpower Development Corp.) of Durham, N.C.

Both reports said much the same thing: that the market had dried up. There were, the reports said, 15,000 industrial inducement committees in the South chasing 1500 industries—and if they relocated at all, it would be whether inducements in the form of tax incentives were offered or not. “At best, the states have assisted businesses in doing what they wanted to do anyway,” the ’86 report said.

“The factors which once made the rural South attractive (to industry) are now losing relevance,” it said. That’s because the South, which once boasted an abundance of low-cost labor, can no longer complete in the global market. Where American apparel workers would earn $6.52 an hour (remember, this was in 1986, but the numbers are still comparable), their counterparts in Korea and Taiwan earned $1 and $1.43, respectively, and Chinese workers made about 26 cents per hour.

Shadows in the Sunbelt called southern states’ tax incentives to lure business and industry a “buffalo hunt,” an analogy to the great buffalo hunts of the 19th century which nearly wiped out the North American bison population. “Yet the hunters (states) continue in their pursuit, hoping to bag one of the remaining hides,” the report said.

The stampede actually started in Mississippi 80 years ago through a program called “Balance Agriculture with Industry” whereby the state used municipal bonds to finance construction of new plants. That practice evolved into tax breaks offered to prospective industries as states began forfeiting property tax revenues to lure new jobs.

Today, Louisiana gives up about $3 billion each year in tax breaks and credits doled out in various programs, all of which are designed ostensibly to attract industry and raise the standard of living through more and better jobs but which in reality, do little of either.

What we’ve received instead are tax breaks for duck hunters, chicken plucking plants, Wal-Mart stores, fast food franchises and for industries that either (a) get the tax incentives but which soon shut down operations (Nucor Steel, General Motors) or (b) claim the creation of great numbers of new jobs but which actually are far fewer than announced.

In fact, the ’86 report said, a long-term study of job promises in South Carolina revealed that only 52 percent of the jobs promised actually materialized. In Louisiana, when Bobby Jindal ran for re-election in 2011, he claimed in TV ads that the Louisiana Department of Economic Development during his first term handed out incentives that brought 25,425 new jobs to Louisiana. The actual number, however, was only 6,729. That’s only 26.5 percent of the jobs promised. https://louisianavoice.com/2011/09/29/jindal-plays-fast-and-loose-with-jobs-claim-tv-campaign-ad/

The ’86 report said as much. “The costs of inducements offered to attract industry are also heavy—and in some cases counterproductive,” it said. Evidence showed that tax breaks did not significantly affect plant location decisions but states nevertheless open up the state treasury for companies to loot even though the benefits do not offset the costs. “Whatever the effectiveness of industrial recruiting in the past, current trends clearly indicate that its value as a tool for economic development is declining,” it said.

That was 30 years ago and we’re still giving away the store by adhering to a faulty ALEC-backed policy of favoring corporations over citizens.

As an alternative, the report recommended that in lieu of spending millions to attract out-of-state industries, states should implement programs to support local development and to encourage entrepreneurship.

The 2002 report, State of the South, only reiterated the recommendations of the study of 16 years earlier. It also should have sent a clear message to the Louisiana Legislature and to Bobby Jindal six years before he came to power. The latter report’s recommendations included:

Refocus state agencies responsible for economic development to pursue a broader, more strategic approach;

State governments should not measure success simply by the number of new jobs, but also in terms of higher incomes for people and improved competitiveness of regions within the states;

Modernize tax systems so that states have the fiscal capacity to provide excellent educatin, widely accessible job training, necessary infrastructure, and community amenities that enrich the soil for economic development;

Tighten performance criteria for industrial incentives—and encourage associations of Southern governors and legislators to reexamine the one-dimensional, incentives-driven recruitment strategy in favor of a comprehensive economic development strategy;

Dramatically expand efforts to erase serious deficits along the entire education continuum in the South, and bolster the education, health and well-being of children;

Draw on universities and community colleges to act as catalysts for state and regional economic advancement.

The 2002 report said high-poverty, sparsely-populated areas are last to get telecommunications infrastructure. More than 60 percent of the zip codes in the Delta areas of Arkansas, Mississippi and Louisiana have no broadband internet provider which further widens the competitive gap for these areas. Yet Jindal rejected an $80 million federal grant to install broadband in Louisiana’s rural areas. http://www.nola.com/politics/index.ssf/2011/11/80_million_grant_for_rural_bro.html

Because Louisiana, along with the rest of the South, made a commitment to low taxes, low public investment, and low education in return for jobs. That strategy trapped the state in a cycle of low-wage, low-skill industry “begetting more low-wage, low-skill industry,” and thus perpetuating the “Wal-Mart Syndrome.”

Mac Holladay, who served as head of economic development for three Southern states summed up the situation. “If we had put the vast majority of our economic development resources into incubators, small business services, export training, and existing business assistance instead of recruitment and overseas offices, it might have made a big difference.”

Tax abatements and other financial giveaways, the 2002 report said, “inevitably drain resources from schools, community colleges and universities—public investments that are crucial to long-term economic advancement. Incentives provide a better return on investment when they build a community’s infrastructure, provide workers with higher skills and attract jobs that pay markedly more than the prevailing wages.”

Even when Mississippi granted $68 million in incentives for Nissan’s assembly plant in Canton, a small town just north of Jackson, the company’s director of human resources told the Jackson Clarion-Ledger that he could not name any Canton resident likely to be hired for one of the 5,300 jobs starting at $12 per hour. He attributed that to the town’s 27 percent poverty rate, 76 percent of out-of-wedlock births and 44 percent of adults without a high school diploma.

Carley Fiorina, former chief executive for Hewlett-Packard and more recently an unsuccessful candidate for the Republican presidential nomination said, “Keep your incentives and highway interchanges. We will go where the highly skilled people are.”

“Not so long ago,” said the 2002 State of the South report, “the South sought to build its economy by enticing companies from afar to relocate with the bait of cheap land, low taxes, and a surplus of hardworking but undereducated workers. That old recipe no longer works to feed families and sustain communities.

“No comprehensive strategy would be complete without further efforts to bolster public schools,” the report said.

“There must be a recognition that the ultimate challenge lies in the educational and economic advancement of people who have gotten left behind,” it said. “We must get the message out to every household, every poor household, that the only road out of poverty runs by the schoolhouse.

“The line that separates the well-education from the poorly education is the harshest fault line of all.”

Yet, Louisiana’s leaders insist on doing the same thing over and over and expecting different results.

And we keep electing the same failed policy makers over and over and over…

11 Responses

“Tax abatements and other financial giveaways, the 2002 report said, “inevitably drain resources from schools, community colleges and universities—public investments that are crucial to long-term economic advancement.”

All by design.

“Incentives provide a better return on investment when they build a community’s infrastructure, provide workers with higher skills and attract jobs that pay markedly more than the prevailing wages.”

I agree. If this hasn’t been changed, it is due to willful ignorance on the part of those with the authority to change it and the citizens that give them that authority without knowledge of the facts. Same old story of the self-destructive Southern states, I guess.

As long as Louisiana and other southern states are willing to compete with one another to buy jobs rather than make themselves competitive on their own merits (good infrastructure, education, etc.), the vicious cycle will continue. Worse, it never quite seems to occur to our leaders that what would make us truly attractive to new business would greatly benefit our citizens, per se. Pretty dumb.

When Boeing was asked why it located it’s aircraft repair and retrofit operations to Lake Charles it responded by saying “Because of the reputation of the work ethic and skill level of the available workforce found in the area.” Not one word about tax incentives, etc. It was all about the workers training and dependability.

I have a vague recollection that in 2012, one of Jindal’s ten line-item vetoes was to eliminate a bill amendment by Katrina Jackson that would have required businesses receiving huge tax breaks from Louisiana to verify that they were actually delivering on the promised jobs and other benefits. Jindal said this was redundant and unnecessary and vetoed.

The veto message is at the end. I cleaned it up to make it easier to read. Our beloved governor didn’t want to overburden those state employees he cared so much about, plus he tried to claim the annual review of the Tax Exemption Budget by legislative committees makes this reporting unnecessary. In other words, he’s saying it is really up to the legislature to do what the executive branch should have been doing all along. What a leader.

To enact R.S. 47:1517.1, relative to tax incentives; to require state agencies which administer tax credits and tax rebates to make certain reports; to provide relative to the contents of such reports; to provide for certain requirements and limitations; to provide for definitions; and to provide for related matters.

A. No later than the first day of March each year, the secretary of each state agency or head of each state office within a state department which administers a tax credit or tax rebate, hereinafter referred to collectively as “tax incentive”, shall prepare and submit to the legislature a report regarding the tax incentive which the department or office administers. The report shall include an assessment of each tax incentive based on the following criteria:

(1) Whether or not each tax incentive has been successful in meeting the purpose for which it was enacted, in particular, whether each tax incentive benefits those originally intended to be benefitted, and if not, those who do benefit.

(2) Whether or not the state receives a positive return on investment from the
20 business or industry for which the tax incentive is intended to benefit.

(3) Unintended or inadvertent effects, benefits, or harm caused by each tax incentive, including whether each tax incentive conflicts with other state laws or regulations.

B.(1) Nothing in this Section shall be construed to require the disclosure of proprietary or trade secret information which has been submitted to any state agency with respect to a tax credit.

(2) Nothing in this Section shall be construed to supercede any provision of R.S. 47:1508 with respect to the confidentiality of taxpayer records.

C. Each state department or state office required to submit a report pursuant to the provisions of this Section is authorized to request from any other state or local agency or official any information necessary to complete the report required by this Section. Any such official shall comply with this request.

D. For purposes of this Section, the terms “state agency” and “state office” shall mean any office, department, board, commission, institution, or division within the executive branch of state government. An agency which is required to generate reports pursuant to this Section shall be an agency which is required by law to administer a tax incentive. Administration of a tax incentive shall be evidenced by a legal requirement or authorization to undertake any of the following actions for purposes of administration of the tax incentive:

(1) Promulgate rules or regulations; in cases where more than one agency has rulemaking authority, the report shall be prepared collaboratively;such rules and regulations shall be approved by the Senate Committee on Revenue and Fiscal Affairs and the House Committee on Ways and Means meeting jointly prior to their adoption.

(2) Determination, review, or confirmation of eligibility or qualifications.

(3) Be party to a contract with an entity for purposes of a tax credit.

(4) Conduct oversight or substantial administrative functions for a tax incentive when the public purpose associated with the tax incentive is within the core mission of the agency.

HB NO. 1104 ENROLLED

CODING: Words in struck through type are deletions from existing law; words underscored
are additions.

E. The Department of Revenue shall develop a format similar to the format used for reporting information contained in the annual tax exemption budget provided for in R.S. 47:1517. The format shall be made available to all state agencies and state offices for use in preparation of their report pursuant to the provisions of this Section.

F. The House Committee on Ways and Means and the Senate Committee on Revenue and Fiscal Affairs, hereinafter referred to as “committees”, shall conduct hearings on the reports every odd-numbered year, to be concluded thirty days before the beginning of the regularsession of the Legislature of Louisiana. The committees shall analyze and consider tax incentives which have caused revenue lossto the state in any one of the last three fiscal years. From time to time, the committees may report to the legislature findings or recommendations developed as a result of the hearings.

SPEAKER OF THE HOUSE OF REPRESENTATIVES
PRESIDENT OF THE SENATE
GOVERNOR OF THE STATE OF LOUISIANAAPPROVED:

The Louisiana Department of Economic Development issues regular reports and analyses on its incentive programs. The Louisiana Department of Revenue creates a comprehensive Tax Exemption Budget which covers all tax incentives administered by state agencies every year. Furthermore, Act 365 of 2011 provides for a review of the Tax Exemption Budget by the House Committee on Ways and Means and the Senate Committee on Revenue and Fiscal Affairs every odd-numbered year.

For this reason, I have vetoed House Bill No. 1104 and hereby return it to the House of Representatives.

Jindal and his Jindalites lied to get elected, remember to pass the golden ethics reform which was not mentioned in the LSU economic report, but the report did correctly state that an educated workforce was number one. I had fun with my Rep, Dr Hopalong Cassidy, now Senator Hopalong Cassidy,pretending that I supported the ethics reform. I suggested putting in the ethics legislation, a requirement similar to Katrina’s, that any business that moved here should certify that they did so because of “ethics reform”, as a method of measuring “outcome/results” new words for Cassidy. Never heard from him again
ron thompson

Thank you for this article. I sent it to my rep and Rep. Cameron Henry. I also just saw an exemption you might want to get more info on as to whether or not the exemption on big chemical, oil & industrial companies produce the jobs or other economic stimulus from their exemptions. Here is a quote from an Advocaye article. “Another one, House Bill 104, would strip some of the sales tax exemptions enjoyed by business. This measure, however, does not touch the big-ticket exemptions enjoyed by big chemical, oil and industrial companies.” http://www.theneworleansadvocate.com/news/14991870-86/louisiana-house-advances-1-cent-sales-tax-increase.

No matter how many grad degrees you get there is no place for southerners in the south. Lack of education is just a cover to give jobs to outsiders – probably mostly outsiders who know how to bribe. Most Americans don’t even know how to bribe someone.

Very important point: “Even when Mississippi granted $68 million in incentives for Nissan’s assembly plant in Canton, a small town just north of Jackson, the company’s director of human resources told the Jackson Clarion-Ledger that he could not name any Canton resident likely to be hired for one of the 5,300 jobs starting at $12 per hour. He attributed that to the town’s 27 percent poverty rate, 76 percent of out-of-wedlock births and 44 percent of adults without a high school diploma.”

The really high level jobs went to Japanese, I think.

They put in an excellent road nearby the Nissan plant – one of the nicest I’ve seen anywhere.

[…] behind the rest of the nation. And probably the most egregious, but southern politicos like to give taxpayer dollars to huge corporations so they can bring their low-paying jobs to a southern state and benefit from the South’s […]

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